This shocking revelation is that Pakistan’s government is facing a whopping revenue shortfall of Rs190 billion in the first four months of the fiscal year with record-high tax measures.

According to reports, collections were made at Rs3.440 trillion against the set target of Rs3.632 trillion, which speaks volumes about significant gaps which are threatening the financial stability of the nation. This shortfall burdens not only the government finance but also brings new uncertainty upon the authorities and, at large, taxpayers. As the International Monetary Fund is mounting a great pressure on the budgetary affair of the government concerning its target of tax yields, a mini-budge or some budgetary correction might come in the financial horizon ahead.

The government has reached an end of the road at the hands of persistent FBR revenue gap, given little choice but to have new fiscal policies. There is a possibility that with budget increments, tough protocols of enforcement, or chopping major public expenditure in-line with IMF demands. The IMF mission’s final shape isn’t known yet, hints are that it will be sending its team to Islamabad soon. A draft ordinance is ready and may be tabled before the federal cabinet anytime soon. The ordinance, if promulgated, would have strong tools of enforcement such as freezing bank accounts and restrictions of purchase of real estate as well as purchase of a vehicle. Hiked withholding taxes on imports, and property deals, as well as other taxation lines for the FBR.

In the PSDP, they can scale back the more as of the first quarter of the fiscal year 2024-25 with a meager amount Rs22 billion spent against an amount of Rs1,100 billion released for that period ending in September.

The FBR reported a revenue deficit of Rs189 billion during the first four months of the fiscal year. There is increasing apprehension that it would continue in the first half of the fiscal year, from July to December, and be around Rs321 billion. Perhaps, then, there is no other option but to introduce a mini-budget to stabilize the fiscal situation with IMF commitment.

The government might be tempted to appease the IMF by trimming current expenditures; but that would be opposed by the ministry of finance. In case the gap in terms of revenue expands then, fiscal authorities would most likely be compelled to regulate unsanctioned expenditures that are running amok now. The Pakistani government is between a very hard place and a rocky place. Any support they provide to enhance taxes, would further dampen an already weak demand. However, the FBR has rejected the claims that the IMF rejected its request to set lower revenue targets.

Despite imposing unprecedented tax increases this year, the government has failed to achieve a four-month revenue target by Rs190 billion, a gap which may necessitate revised targets or even a mini-budget to fill the hole. The FBR collected Rs3.440 trillion against a target of Rs3.632 trillion, indicating severe pressure on government finances and possible exposure of risk for both the government and taxpayers.

Even as total collections increased by Rs688 billion over the previous fiscal year—chiefly supported by collections in the form of income tax—the deficit is a source of alarm. Government officials had long warned that an increase in the deficit was anticipated due to discrepancies between revenue projections at the start of the fiscal year and actual outcomes of the first quarter of the fiscal year.

The FBR could not also realize its October target by collecting Rs877 billion, which was against its projections of Rs980 billion with a shortfall of Rs103 billion. To show more collection figures, refunds that were legitimate to taxpayers were delayed, as in the month of October Rs22.6 billion were released compared to Rs30 billion in the same month of the previous year. An FBR statement pledged that Rs32 billion of refunds would be released during the month of November.

Almost 5.1 million income tax returns had been submitted by the last filing date. However, enforcement appears anemic, seemingly owing to a lack of political will for stricter compliance on the part of traders, in particular.

The FBR needs a 40% growth to achieve an annual revenue of around Rs13 trillion, an aggressive pace, as results were rather dismal during the first quarter. A shortfall of Rs325 billion to Rs350 billion is envisaged in the first half of this fiscal year.

Income tax collections have grown to Rs1.616 trillion in the first four months of the fiscal year-up Rs386 billion, or 32%, from the previous year and Rs201 billion above the target. Sales tax revenue increased to Rs1.236 trillion, 24% more than last year, but still short by Rs212 billion of the target. Federal excise duty was collected at Rs214 billion, up 21% from last year but still Rs83 billion short of target despite the increase on items like cement, lubricant oil, and real estate transactions. Customs duties were Rs374 billion, up by just 10% and Rs98 billion less than the target.

It, however, challenged FBR’s argument that the setting assumptions were factually incorrect as inflation figures in the first quarter came in at 9.2 percent, while expectations had been for a jump of almost 10.2 percent in the same period. Such slight variations in world economies are still uncertain, and thus expected; and secondly, was evidence for the IMF to revise its estimate of 2025 inflation projection of 12.7 percent down to nearly 9.5 percent proof that variations such as that are part and parcel to policy or budgeting plans in itself.

The continued deficit in revenues only adds to the challenges Pakistan is currently facing in the area of fiscal management, mainly in a time of economic stress and in the absence of stern measures for compliance. While the FBR needs to take giant strides at a time when annual revenue targets need to be met, additional taxation to meet that target will necessarily add more burden on a distressed population. The government needs to walk a tightrope between compliance with the IMF’s strict targets for fiscal policy and, at the same time, fostering economic growth. Commitment to transparency and efficiency in tax collection will be key to restoring fiscal health and instilling confidence in both domestic and international stakeholders going forward.